IRDs Rising, But Image Clearing Is Going up Much Faster, Stats Show

While many bankers and industry experts lament the continuing rise in volume of so-called substitute checks, the paper documents most banks require for clearing of items that had been converted into electronic image files, newly available industry data indicate the number of checks cleared as electronic images is rising even faster. This trend is helped along by a near-doubling in the number of institutions receiving image files for clearing in the past year, the data show. The volume of checks cleared as image files in July reached 96.9 million items, up 8% over June and 37 times the number cleared in July 2005, according to information collected from several image-exchange networks by the Dallas-based Electronic Check Clearing House Organization, a non-profit banking-industry group that develops rules for image exchange and electronic check presentment. Substitute checks, the paper printouts of check images authorized under the Check 21 law, totaled 120.8 million items, up 3% from June and 7 times the number in July last year. Check 21, which went effect almost two years ago, encourages electronic check processing by allowing banks to treat printouts of check images as if they were the original items. While the law doesn't explicitly address image exchange, by giving legal authority to substitute checks it indirectly encourages banks to engage in imaging and cuts much of the cost of check transportation out of the clearing process. Still, proponents of end-to-end image exchange have decried the steady increase in substitute checks, also known as image-replacement documents (IRDs), because they re-introduce the inefficiencies of paper into check processing. IRDs are created by banks of first deposit from imaged items when paying banks are incapable of clearing on images. But the ECCHO data indicate image clearing is growing much faster than perhaps many in the industry realize. Indeed, while in July 2005 there were seven IRDs collected for each image, that ratio a year later stands at 1.25 to one. Looked at another way, transactions settled as images now account for 44.5% of all image volume, up from 13% in July 2005 and from 24% in January. At the same time, the number of institutions now receiving images stands at 4,216, or roughly 25% of all U.S. banks. That's up 86% from a year ago and indicates that the rate of growth of items cleared as image files is likely to continue outstrip the growth of IRDs. “Many more can be expected to implement check-image enhancements in the near future,” ECCHO says on its Web site. Interestingly, ECCHO points out that, based on the combined image-exchange dollar volume of $571 billion in July, checks cleared via image and IRD now account for 17% of all annualized check volume. ECCHO says this now exceeds all credit and debit card payment volume, though the image-exchange volume includes large-dollar business payments not typically replaced by cards. ECCHO gathers statistics from the Federal Reserve, SVPCO's Image Payments Network, and the National Clearing House Association, which handles payments for the Endpoint Exchange national image exchange and several other networks.